Zero rating VAT on energy saving solutions
Did you know that as an installer, you could be zero rating the VAT on some of your installations? This can be a valuable sales tool, reducing the price paid by your customers on not only equipment but also your labour and sundries.
If you’re an end customer and not an installer, then you could benefit from this same scheme by speaking to an installer rather than DIY-ing.
The purpose of the VAT relief scheme in question, which we’ll come onto shortly, is to reduce the cost for homeowners to add energy saving solutions to their properties.
As Rithum Switch can function as a thermostat (called Rithum Stat), Rithum installations can be eligible for zero-rating, however there are some caveats to be aware of.
In this expanded guide, we will delve into the specific eligibility criteria and provide detailed steps on how to ensure compliance and maximise the energy-saving purposes of Rithum Stat.
By following these guidelines, you can confidently navigate the complexities and nuances of the eligibility requirements (although this does not constitute tax advice which your accountant or other specialist can provide).
Under what scheme can VAT be zero-rated for energy saving materials?
The VAT act of 1994 says that “installations of energy-saving materials in Great Britain (England, Scotland and Wales) are zero-rated” and since the 1st April 2023 (or 1st May in Northern Ireland), has been amended in order to make the scheme simpler (see 2.8 in the notice below for more on the amendments).
In essence, it means that installers can zero-rate the VAT on the simultaneous supply & installation of energy saving materials by meeting minimal eligibility criteria.
In 2014, HMRC published a notice explaining the scheme, which they have updated frequently since and is an invaluable reference guide for the initiative.
As per section 2.13 of that notice, the scheme covers “Central heating and hot water system controls”, which in turn includes:
- manual or electronic timers
- mechanical or electronic valves, including thermostatic radiator valves
So, that’s the scheme and how it is relevant to heating controls, including timers and thermostats, such as Rithum Stat. Now let’s explore how to meet the energy-saving criteria and ensure Rithum Stat qualifies for zero rating VAT.
Eligibility Requirements for Zero Rating VAT
- Residential Properties: The zero rating VAT incentive typically applies to residential properties. Ensure that the installation of Rithum Stat is intended for a residential property and not for commercial or non-residential purposes.
- Energy-Saving Purpose: Rithum Stat qualifies for zero rating VAT as an energy-saving heating control device. To meet this requirement, it’s essential to ensure that the initial installation of Rithum Stat is focused on its function as a thermostat. This means using it solely for climate control purposes initially, without incorporating additional features or functionalities.
- Supplied with installation: To zero rate, the equipment must be provided alongside installation of the said equipment. The installation can be chargeable and is also eligible for relief, however supply of the equipment alone, without installation, is not eligible.
Ensuring Energy-Saving Purposes with Rithum Stat
To ensure compliance and meet the energy-saving purposes of Rithum Stat, follow these specific steps:
- Initial Installation as a Thermostat: During the initial installation, utilise Rithum Stat solely as a thermostat to control and regulate the home’s climate. This approach demonstrates a primary focus on energy-saving purposes, aligning with the eligibility requirements for zero rating VAT. Avoid incorporating additional features or functionalities at this stage to maintain the device’s designation as an energy-saving heating control.
- Documentation of Initial Installation: Document the details of the initial installation, emphasising its purpose as a thermostat for energy-saving climate control. Keep comprehensive records, including project specifications, invoices, and any other relevant documentation that clearly demonstrates the energy-saving intent of the installation.
- Future Enhancements: While the initial installation should focus on the energy-saving purpose of Rithum Stat as a thermostat, it’s important to note that additional features and functionalities can be incorporated in subsequent phases. Once the initial installation meets the eligibility criteria for zero rating VAT, you can enhance the system by adding further smart home integrations or capabilities. See the headings further down on Other and Ancillary Goods for more guidance on this.
- Compliance Verification: Be prepared for potential verification requests from the government to ensure compliance with the eligibility requirements. When documenting future enhancements to the Rithum Stat system, clearly distinguish between the initial installation as a thermostat and any subsequent integrations or expanded functionalities. This differentiation helps demonstrate adherence to the energy-saving purposes while still allowing for system enhancements.
- Professional Advice: Seek guidance from a tax advisor or accountant with expertise in VAT regulations to ensure a clear understanding of the eligibility requirements and any specific considerations related to energy-saving purposes. They can provide tailored advice on maintaining compliance throughout the installation process and subsequent enhancements.
Installation with other goods and services
The example HMRC provides in 2.9.1 on supplying with other goods is that the components of a central heating system by themselves qualify, but when supplied together, they form a central heating system, which does not qualify for relief. Timing here is everything and again we would recommend ensuring that the initial project just covers eligible goods (plus ancillary goods as covered in the next heading). If the customer then decides later to enhance their system then, well, it has been decided later and so should not be considered as the same supply.
In the case of Rithum, installing Rithum Switch alongside smart speakers or lighting as part of one large project would not be eligible for relief, however supplying Rithum Switch as Rithum Stat with a Bridge and relays solely for heating control would be eligible. Later adding audio or lighting control into the mix is a separate supply and therefore should not affect the eligibility of the original Rithum Stat supply.
Applying the zero rate to ancillary goods
So you’ve installed Rithum Stat for a customer and zero-rated Rithum Switch and the labour, but what about any other goods or sundries that you have supplied alongside? Well, according to 2.9.2 of HMRC’s notice, these ancillary goods are eligible for the same treatment as long as they are supplied as a result of Rithum Stat being installed. For example, if you supply a Philips Hue Bridge and a Zigbee relay to control the heating system (which you can read more on in this Rithum Stat guide), then these and any cables could be zero-rated too.
This can become a bit of a minefield quickly, however section 2.9.4 does address “Mixed Supply”, and gives the following example:
“if you’re contracted to build an extension and, as part of the same contract required to fit thermostatic valves to all the radiators in the house, this is a single standard-rated supply of construction services.
However, if you have a contract to build an extension and sometime after the work has commenced, the homeowner separately asks you to install thermostatic valves, this is a separate supply that will qualify for relief.”
Essentially this means that as long as you keep things clearly defined and documented, then you should have no problem installing Rithum Stat and later going back to add something such as audio or lighting integration.
Meeting the eligibility requirements for zero rating VAT with Rithum Stat involves an initial installation focused on its function as a thermostat for energy-saving climate control.
By documenting the purpose and details of the initial installation and distinguishing it from any future system enhancements, you can ensure compliance and maximise the benefits of the government incentive. Remember to seek professional advice, stay updated on regulations, and maintain comprehensive records to support your zero rating VAT claim.
By following these steps, you can confidently incorporate Rithum Switch into your projects, offer cost savings to your customers, and provide an energy-efficient and enhanced smart home climate control system that aligns with the eligibility criteria for zero rating VAT.
Disclaimer: The information provided in this guide is for informational purposes only. It is essential to consult official government sources and seek professional advice to ensure compliance with the latest regulations and eligibility criteria.